By Silla Brush - 08/25/10 04:18 PM EDT
The Securities and Exchange Commission on Wednesday gave shareholders broad new powers to nominate directors for corporate boards.
The new rule, adopted 3-2, is a major win for labor unions and large activist investors. Advocates for the rule spent years pressing for a greater say in public company boardrooms.
The SEC said the recent financial overhaul bill enacted by President Obama in July granted the authority to adopt a "proxy access" rule.
"As a matter of fairness and accountability, long-term significant shareholders should have a means of nominating candidates to the boards of the companies that they own — candidates that all shareholder-voters may then consider alongside those who are nominated by the incumbent board," SEC Chairwoman Mary Schapiro said in prepared remarks
The new SEC rule is set to take full effect in three years. Business groups vowed Wednesday to fight the rule, possibly through a court challenge.
The "proxy access" rule gives shareholders more power to nominate directors, although they would still need to be elected. Under the rule, a shareholder or group of shareholders that have held at least 3 percent of a company's voting stock for three years or more would be able to nominate directors.
The rule change is designed to empower shareholders who have a long-term interest in seeing companies succeed.
Labor unions and activist shareholders praised the rule.
AFL-CIO President Richard Trumka said the commission took "an important and historic step."
"Investors and public interest advocates have looked to the commission to provide greater disclosure in the area of corporate elections for close to 70 years," Trumka said in a statement.
The U.S. Chamber of Commerce criticized the rule as favoring labor unions and hurting businesses and investors.
“This special interest-driven rule is a giant step backwards for average investors. Using the proxy process to give labor union pension funds and others greater leverage to try to ram through their agenda makes no sense," said David Hirschmann, CEO of the Chamber's Center for Capital Markets Competitiveness.
"Instead of giving some investors front-of-the-line passes, the SEC should be focused on advancing the interests of all investors, including retail investors. The Chamber will carefully review the rule that was approved today and will continue to fight this flawed approach using every method available," Hirschmann said.